DALLAS — Standard & Poor's has withdrawn its rating on a $110 million Glendale, Ariz., rubbish-to-energy plant after the operator missed its October bond payment.
The rating was lowered to D from CCC on Oct. 4, indicating that the bond issuer Phoenix Industrial Development Authority had defaulted on its scheduled debt payment.
The plant at a landfill site in Glendale, Ariz., failed to produce energy after it was opened in 2014. Operator Vieste Energy LLC of Chicago and the city of Glendale are litigating claims about the failure. Vieste maintains in a $200 million lawsuit that Glendale has not provided the kind of trash that can be converted to energy. Glendale has countersued, claiming Vieste has not lived up to its agreement.
"Although as of Oct. 1, there were sufficient funds remaining in the debt service reserve fund to make the required payments on the 2013A bonds, there were insufficient funds to make the payment on the 2013B bonds," S&P analyst James Breeding said. "It is our understanding that funds are being maintained to address litigation expenses."
Glendale claims that Vieste was due to pay $10,000 a month under the original agreement while the plant was not in use. The city sent a letter to Vieste stating that it wanted payment by Sept. 1 or it would consider cancelling the original agreement.
"The case has not been resolved and we are proceeding with the litigation," said Glendale spokeswoman Kim Larson.
Bond proceeds were lent to Vieste to build and equip the materials recovery facility in Glendale. Although the city was required to supply the trash for the facility, it bears no responsibility for the debt, officials said.
Bondholders authorized an additional $8 million in debt in January to retrofit the plant so that it could process the type of debris supplied by Glendale.
Glendale provides Vieste a land lease agreement that is $100,000 per year for a 30-year term, officials said. Vieste, in turn, agreed to pay Glendale an annual recycling management fee of $476,000. The plant was designed to produce up to 350 tons of gas from municipal solid waste every day, providing enough energy to generate 15 megawatts of electricity.
The contract with the city does not specify a buyer for the power produced by the waste. A fee for solid waste collections is charged on the monthly utility bill, though revenues from those funds are not officially pledged to these bonds, Breeding noted.
